Chapter six: Controlling Function

Definition of controlling

o Controlling is the process through which managers assure that actual activities conform
to planned activities.
o Controlling is the process of regulating organizational activities so that actual
performance conforms to expected organizational standards and goals.
o It is checking current performance against predetermined standards contained in the
plans.

Importance of Controlling

All the good planning efforts and brilliant ideas in the world do little good if a firm has no
system of managing control. Control, therefore, is an essential part of effective
organizational management. Specifically, control helps an organization adapt to changing
conditions, limit magnification of errors and provide the means to monitor performance.

o Adapting to changing conditions: in today’s dynamic and unpredictable business

environment, control plays a crucial role than ever. A properly designed control
system allows managers to effectively anticipate, monitor, and respond to often
constantly changing conditions.
o Limiting the magnification of errors: generally, a small error or mistake does not
adversely affect organizational operation. However, a small error/mistake left
uncorrected (perhaps one undetected as a result of a lack of control) may be
magnified with the progress of time, eventually harming the whole organization.
o To prevent failure: To determine whether people and the various parts of an
organization are on target, achieving the progress toward their objectives that they
planned to achieve. Planning chooses goals and maps out the necessary strategy and
tactics. Controlling attempts to prevent failure (and to promote success) by providing
the means to monitor the performances of individuals, departments, divisions, and
the entire organization.

The controlling process is closely associated with the other three functions of management:
planning, organizing and leading. It builds most directly on the planning function by
providing the means for monitoring and making adjustment in performance so that plan can
be realized. Still, controlling also supports the organizing and leading functions by helping
ensure those resources are channeled toward organizational objectives. A combination of
well-planned objectives, strong organization, capable direction and motivation has little
probability of success unless there exists an adequate system of control. Planning,
organizing, staffing and directing must be monitored to maintain their effectiveness and
efficiency.

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The Controlling Process
Although control systems must be tailored to specific situations, such systems generally
follow the same basic process. The controlling process has five major steps.

1. Determine Areas to Control: The first major step in the control process is
determining the major areas to control, i.e. identify critical control points. Critical
control points include all the areas of an organization's operations that directly affect
the success of its key operations, areas where failures can not be tolerated, and
costs in time and money are greatest. Managers must make choices because it is
expensive and virtually impossible to control every aspect of an organization’s
activities. In addition, employees often resent having their every move controlled.
Managers usually base their major controls on the organizational goals and
objectives developed during the planning process.
2. Establishing Standards: Standards are units of measurements established by
management to serve as benchmarks for comparing performance levels. They spell
out specific criteria for evaluating performance and related employee behaviors. The
exact nature of the standards to be used depends on what is being monitored.

Standards, if possible, must be

- Specific and quantitative as much as possible.
- Flexible to adopt the changes that may occur over the future.
- Challenging and should aim for improvement over past performance.

Generally, standards serve three major purposes related to employee behavior. For one
thing, standards enable employees to understand what is expected and how their
work will be evaluated. This helps employees do an effective job. For another, standards
provide a basis for detecting job difficulties related to personal limitations of
organization members. Such limitation can be based on a lack of ability, training, or
experience or on any other job-related deficiency that prevents an individual from
performing properly on the job. Timely identification of deficiencies makes it possible to
take corrective action before the difficulties become serious and possibly irresolvable.
Finally, standards help reduce the potential negative effects of goal incongruence.
Goal incongruence is a condition in which there are major incompatibilities between goals of
an organization member and those of the organization. Such incompatibilities can occur for
a variety of reasons, such as lack of support for organizational objectives (e.g. an employee
views the job as temporary and attempts to do the minimum), and often result in behaviors
that are incompatible with reaching organizational goals. One common manifestation of
goal incongruence is employee theft, which includes wasting an organization's resources, as
well as taking equipment, materials and money.

There are three types of standards: performance standards, corollary standards and
standards of conduct.

o Performance standards deal with quality, quantity, cost and time.

o Corollary standards support a given level of performance. These include minimum
personnel requirements and adequate physical resources, such as when a company
knows it will need at least five hundred workers and well-equipped factory to
produce a certain number of terminals.

o Standards of conduct are moral and ethical criteria that shape the behavioral
climate of the work place. They originate from law, custom and religious beliefs.

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Examples of standards: Producing 800,000 units per year, increasing market share by 20%,
cutting costs by 15%, answering all customer complaints within 24 hours.

3. Measuring Actual Performance: Once standards are determined, the next step is
measuring performance. For a given standard, a manager must decide both how to1
measure actual performance and how often2 to do so.

4. Comparing Performance against Standards: This is a step where comparison is

made between the “what is” and the “what should be.” Managers often base their
comparisons on information provided in reports (oral and written) that summarize
planned versus actual results, and by working around work areas and observing
conditions, a practice sometimes referred to as Management by Wondering Around
(MBWA). The purpose of comparing actual performance against intended
performance is, of course, to determine if corrective action is needed.

Consequently, the comparison result may show that the actual performance exceeds
(positive deviation), meets (zero deviation), or falls below (negative deviation)
expectations (standards). Accordingly, if performance fulfills expectations (meets
standards), no control problem exists. However, if performance exceeds or fails to
meet expectations, further investigation is required to determine the cause.
Performance that exceeds expectations may mean either superior talent or
inappropriately set standards. Performance that fails to meet expectation may likely
mean inappropriately set standards, poor talent or improper use of resources. The
key question in both cases will be, “How much variation from standards is acceptable
before action is taken?” The answer to this question will lead to the development of
ranges defining upper and lower limits. And performance outside of acceptable range
servers as a red flag calling for taking the necessary corrective action.

The managerial principle of exception states that control is enhanced by

concentrating on exceptions, or significant deviations from the expected result or
standard. Therefore, in comparing performance with standards managers need to
direct attention to the exception, and by doing so, managers can save time and
effort.

5. Taking Corrective Action (on time): The corrective action to be taken depends up
on the type of deviation that exists. When performance exactly meets (deviation of
zero) or exceeds (positive deviation) the standards set, usually no corrective action
is necessary. However, managers do need to consider recognizing the positive
performance. The type of recognition given can vary from a verbal “well done” for a
routine achievement to more substantial rewards, such as bonuses, training
opportunities, or pay raises, for major achievements or consistently good work. Yet,
favorable deviations should be examined to understand such success. When
standards are not meet, managers must carefully assess the reason why and take
corrective action. During this evaluation, managers often personally check the
standards and the related performance measures to determine whether these are

1 The means of measuring performance will depend on the standards that have been set.
2 The period of measurement generally depends upon the importance of the goal to the organization, how
quickly the situation is likely to change, and the difficulty and expense of rectifying a problem if one
were to occur.

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 still realistic. Sometimes, managers may conclude that the standards are, in fact,
inappropriate-usually because of changing conditions-and that corrective action to
meet standards is therefore not desirable. More often, though, corrective actions are
needed to reach standards. The standards may have been based on historical data
which may be inappropriate to current conditions. In such instances, the past is a
poor basis on which to predict the future. Similarly, the use of comparative standards
may prove to be problematic since no two organizations are alike.

In taking corrective actions, managers must carefully avoid two types of errors:
taking corrective action when no action is necessary and failing to take corrective
action when it is clearly needed.

Types of Controlling
In addition to determining the areas they want to control, managers need to consider the
types of controls that they wish to use. Based on the time period in which control is applied
in relation to the operation being performed, or the stage of productive cycle in which
controlling is carried out, there are three basic types of controls: preventive, concurrent,
and feedback. Thus, an organization’s performance can be monitored and controlled at
three points: before, during, or after an activity is completed.

I. Preventive/Steering/ preliminary / Input Control: Preventive control focuses

on the regulation of inputs to ensure that they meet the standards necessary for
the transformation process. It attempts to monitor the quality and/or quantity of
resources (financial, physical, human and information) before they become part of
the system. Preventive control is future oriented and takes place before the
operation begins. It focuses on prevention in order to preclude later serious
difficulties in the production process - its aim is to prevent problems before they
arise. Nevertheless, since preventive control can’t cover every possible
contingency, other type of controls may also be needed.

E.g. Entrance exams for colleges and universities, policies, rules, procedures,
proper selection and training of employees, inspecting raw materials, the
implementation of induction and orientation programs-save trial and error
cost, frustration of employee. Preventive control comes from an old saying “A
gram of prevention is worth a kg of cure.”

II. Concurrent/Screening/ Yes-No/Checking Control: Concurrent control

involves the regulation of ongoing activities that are part of the transformational
process to ensure that they conform to organizational standards. It is designed to
detect and anticipate deviations from standards at various points throughout the
processes, i.e. the controlling is carried out during the actual transformation
process. The emphasis here is on identifying difficulties in the productive process
that could result in faulty outputs. Because concurrent controls involve the
monitoring of ongoing activities, they are the only controls that can cope with
contingencies (unexpected events) that cannot be anticipated. When contingencies
arise involving activities in a transformation process, a yes/no decision is required.
That is, decision must be made whether to continue as before or follow an
alternative course, or take corrective action, or stop work altogether. In this way,
concurrent controls allow adjustments to be made while work is being done.

E.g. On the job training, on the spot observation, mid term exams, tests, quizzes

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 III. Feedback/Post-Action/ Output Control: As the name indicates post action
control focuses on the end results of the process. It is regulation exercised after
the product (goods or services) has been completed in order to ensure that the
final output meets organizational goals and standards. The information derived is
not used for corrective action on a project because it has been completed.

The feedback control provides information for a manager to examine and apply to
future activities that are similar to the present one. That is why it is called
“historical results guide future actions.” The purpose of feedback control is to help
prevent mistakes in the future and also it can be used as a base for reward; and in
cases where other (preliminary & concurrent) controls are too costly.

E.g. Performance evaluation, financial statement analysis, final exams

Cybernetic and Non-cybernetic Controls

A basic control process can be either cybernetic or non-cybernetic, depending on the degree
to which human discretion is part of the system. A cybernetic control system is a self-
regulating control system that, once it is put into operation, can automatically monitor the
situation and take corrective action when necessary. E.g. computerized inventory system, a
heating system controlled by a thermostat. A non-cybernetic control system is a control
system that relies on human discretion as a basic part of its process.

Characteristics of Effective Control System

Controls may have many different characteristics, but some of the most important are:

o Future–Oriented: To be effective, control systems need to help regulate future

events, rather than fix blame for past events. A well designed control system focuses
on letting managers know how work is progressing toward unit objectives,
pinpointing unforeseen opportunities that might be developed – all aids to future
action
o Multidimensional: In most cases, control systems need to be multidimensional in
order to capture the major relevant performance factors, such as, quality, quantity,
overhead, etc.
o Economically Realistic (Cost Effective): The cost of implementing a control
system should be less, or at most, equal to the benefits derived from the control
system. The benefits received from controls should off-set their expenses.
o Accurate: Since control systems provide the basis for future actions, accuracy is
vital. Control data that are inaccurate may be worse than no control at all, since
managers may make poor decisions on the basis of faulty data they believe to be
accurate. An inaccurate data from a control system can cause the organization to
take action that will either fail to correct a problem or create a problem when none
existent. Evaluating the accuracy of the information they receive is one of the most
important control tasks that managers face.

o Acceptable to Organization Members: Control systems operate best when they

are accepted by the organization members who are affected by them. Otherwise,
members may take actions to override and undermine controls; i.e. controls will not
work unless people want them to. Too many, arbitrary, too few and too rigid controls
often cause the satisfaction and motivation of employees to decline.

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o Timely: Control systems are designed to provide data on the state of a given
production cycle or process as of a specific time. In order for managers and
employees to respond promptly to irregularities, control systems must provide
relevant information soon enough to allow corrective action before there are serious
consequences.

o Reliability and Validity: Controls not only must be dependable (reliable), but also
must measure what they intend to measure (must be valid). When controls can’t be
relied on and are invalid, they are unlikely to be trusted and can lead to very bad
consequences.

o Monitor-able: Another desirable characteristic of control system is that they can be

monitored to ensure that they are performing as expected. One way of checking a
control system is to deliberately insert an imperfection, such as a defective part, and
then observe how long it takes the system to detect and report it to the correct
individual.

o Organizationally Realistic: The control system has to be compatible with

organizational realities. All standards for performance must be realistic. Status
differences between individuals have to be recognized. Individuals have to be able to
see a relationship between performance levels they are asked to achieve and
rewards that will follow.

o Flexible: Just as organizations must be flexible to respond rapidly to changing

environments, control systems need to be flexible enough to meet new or revised
requirements. Accordingly, they should be designed so that they can be changed
quickly to measure and report new information and track new endeavors.

o Focus on Critical Control Points: Critical control points include all the areas of an
organization’s operations that directly affect the success of its key operations. The
focus should be on those areas where failures cannot be tolerated and where that
costs in time and money are the greatest.

o Easy to Understand: Complexity often means lack of understanding. The simpler

the control, the easier it will be to understand and apply. Controls often become
complex because more than one person is responsible for creating, implementing or
interpreting them.

o Emphasis on Exception: A good system of control should work on the exception

principle, so that only important deviations are brought to the attention of
management. In other words management does not have to bother with activities
that are running smoothly. This will ensure that managerial attention is directed
towards error and not towards conformity. This would eliminate unnecessary and
uneconomic supervision, marginally beneficial reporting and waste of managerial
time.

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Over-control Vs Under-control
Since excessive amount of control can make the occurrence of dysfunctional aspects of
control systems more likely, managers need to avoid over control. Over-control is the
limiting of individual job autonomy to such a point that it seriously inhibits effective job
performance. At the same time, managers need to avoid going too far in the other
direction, which results in a situation of under-control. Under-control is the granting of
autonomy to an employee to such a point that the organization loses its ability to direct the
individual's efforts toward achieving organizational goals.

Determining the appropriate amount of control that should exist in organizations is a

significant management decision. With the appropriate amount of control, a manager can
be reasonably certain that no major unpleasant surprises will occur and that employees will
achieve organizational goals.

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